Making the decision to invest in property is not one to take lightly. Here we have come up with some tips and advice on what to think about when considering taking on property investment.
Speak to any good property investor and they’ll always tell you they had a plan in place. Their investment plan ensured they took their time to research the market, crunch the numbers, set themselves goals and set themselves up for success. Start by thinking about why you’re getting started in property investment. Is it to retire early, earn additional income from rent, or perhaps you would like to sell down the track and make a profit from the capital gains? Understanding why you’re getting into property investment will help you make informed decisions about the type and number of properties you should buy.
Setting up a budget can be a nuisance, but it’s crucial to get this part right before you dip your toes into property investment. Aside from working out the basic, mortgage repayments minus the rent of the property, your budget should include bank fees, insurance, rates, maintenance fees and upkeep. If you’re planning on renting it out through an agency, you’ll also need to factor in property management fees and don’t forget your acquisition costs! An accountant or financial planner can help you with this part.
Once you know what you want to achieve, the next step is doing your homework to work out the best way to get there. This means looking at where you want to buy and whether you want to build new or buy established. Of course, there are benefits to both, but with a new home there’s likely to be less maintenance, better depreciation benefits and a structural warranty.
When looking for an investment property, here are a few things to consider:
Wide appeal: It’s wise to find a property that will appeal to a broad range of tenants. For instance, if the property is close to schools, transport links or parks, this could widen your appeal to young families and professionals alike.
Low maintenance: A home that requires a lot of upkeep will eat into your profits quickly (and result in unhappy tenants & an unhappy landlord). If you go for an older home, make sure you get a building inspection so you’re aware of any potential or existing issues.
Features: Secure car parking, two bathrooms, rooms with built-in-robes…they are all appealing to would-be renters. Try and find a property with as many of these features as possible. If you’re unsure, ask the local real estate agents about what tenants look for in their rental properties.
While by no means an exhaustive list, here’s a few things to consider when you’re looking at where to buy:
Growth suburbs: Don’t always dismiss the up-and-comers! New transport links, education or amenity in the pipeline, can be a good sign for capital gains.
Low vacancy rates: High vacancy rates may make it harder to find a tenant and be a signifier of a less desirable area.
Rental yield: Very simply put, this is how much cash your property will produce every year as a percentage of the property’s value. A low rental yield isn’t always a bad thing, especially if you’re after capital growth, but a high rental yield can help with short-term cashflow.
The information provided is meant as a guide only. Porter Davis recommends that all clients seek independent legal, tax and financial advice. Full T&Cs here
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